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ASP you like it

ASPs are great. You do not have to buy, maintain or troubleshoot software and hardware, or pay company people to do it. So what’ the catch?
In a nutshell, an ASP is a company that offers individuals or firms access over the internet to applications and related services that would otherwise have to be located in their own personal or firm’ computers. They are sometimes referred to as apps on tap or business service providers.
On the surface at least, it makes good commercial sense, not only for smaller companies and individuals with low budgets for information technology but also for bigger companies, as a form of outsourcing.
It is ostensibly flexible, has a simple pricing model and can give the company the flexibility it needs to enter new markets quickly. The subsequent streamlining of operations and the efficiencies will make the IFA firms more attractive to product providers.
But like any commercial enterprise – caveat emptor. IFAs considering the ASP option should look both ways before leaping whole-heartedly into a relationship.
If you want to get pedantic about it, there are at least four categories of ASP.
For example, you have your third-party hosts for independent software vendor applications. This is the biggest category of application service providers, with some of the most recognisable vendors. Third-party ASPs let customers pay a monthly fee for web-based access to applications, including the firm’ resource planning and customer relationship management.
Then you have your third-party service providers. These are companies that offer their clients the ability to outsource everything from helpdesks and call centres to entire IT operations – and are increasingly adding applications to the mix. This is particularly relevant to IFAs, enabling their customers, for example, to track and compare multiple quotes and select the one that suits them from their PC or the IFA can access immediate, real-time data through his or her own desktop.
Then there are the independent software vendors which host their own applications. Whether these companies offer hosting as an option for using their software or have chosen to use the web as the only channel for their products, application outsourcing is not their primary business. But they know their products as well as, if not better, than any third party.
There are is the industry-specific software vendors which host their own applications. Specialised software for specific industries are also available through a hosted model. This provides clients with access to applications tailored to their industry’ needs without the need for big up-front investments in IT. Here, the IFA could typically use business-modelling applications or accounting packages or fund trackers.
Once you have made your choice, that is when the real fun starts – choosing the right organisation. Unfortunately, there is no easy answer. Too often, the decision to take the ASP route is the last act of a desperate company – “We need to trim operating costs. Fast.”
An ASP can help a business make considerable savings but not by choosing the cheapest ASP solution in the market. That is common mistake number one.
The most cost-effective ASP model is one that can positively affect your organisation’ cost model. Typically split into fixed (80 per cent) and variable (20 per cent) costs, an effective ASP should at least be able to trim the ratio to 60:40. This way, you can track costs to revenue more easily, more accurately and the business becomes leaner and more agile – qualities which are essential to the modern enterprise.
If you remember nothing else, remember this – cost is certainly one extremely important criterion but you cannot afford to let it be your only criterion. If you go simply for the cheapest option, you could end up paying more in the long term.
In the early days of outsourcing, pundits often compared it with marriage. Given the length of some of the outsourcing agreements, it was the commercial equivalent of two companies walking down the aisle and saying “I do” for the next five or 10 years – which is a very long time in business. Rather than thinking in terms of marriage therefore, the smart business was urged to think in terms of prenuptial.
After all, how much do you really know about your ASP? A frightening thought, considering you are going to entrust them with a sizeable proportion of your business.
Are you compatible? Does the ASP think like you? Are you happy to hand over client files to a central host? Remember, your end-customer will not be fobbed off with any excuses in the event that your relationship with the ASP turns sour (“It’ not our fault, we outsourced that function to x”) because as far as they are concerned, they paid you to do a job.
Are they a viable business in their own right? What happens to your data in the event they go bust or if you have a dispute? Are you left vulnerable to price hikes? What about openness and connectivity? Are your technologies compatible? Indeed, given the relatively low take-up of broadband in the UK, can your IT infrastructure even support a solution from an ASP?
To outsource or not to outsource? That is the question. For the smaller IFA, an ASP solution can be a launchpad to providing services comparable to their bigger competitors.
But an ASP can offer even the bigger IFA advantages. After all, none of the organisations in the market currently has the resources that the pure play financial organisations enjoy. An ASP can be a way to streamline costs and efficiencies, whatever the size of your company.
As a general rule of thumb, the closer the application is to your core business, the less advisable it is to outsource it – the risks are too great, for the reasons cited above.
However, the ASP market is maturing, helped by technology that is getting more sophisticated as well as a wider acceptance towards of outsourcing.
Managed properly, the ASP solution is attractive because you will be paying for somebody to take on those things you are unwilling or cannot afford to do on your own, leaving you to concentrate on your core business.

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  1. Thanks for given such a nice blog, it is very interesting and i like it so much.
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